I am sorry that I did not read all the arguments but anyone saying that $362 million for 75 percent shares of Pakistan Steel Mill was not fair value does not know anything. Pakistan Steel Mill was a loss making venture and never gave any profit until few years before Privatisation was due. Most of Pakistan Steel mill plants were obsolete and the output capacity was 1.1 million ton (after lot of stretching). Any comparable Steel Mill anywhere in the world, even in Western countries could not have fetch much more than $500 million (total price Pakistan Steel Mill was getting, as $362 million was 75 percent stake) with all conditions attached including baggage of unproductive 1000s of labour force, plus commitment by buyers of further investing on Steel Mill that was beneficial to government as that 25 percent shares was to get more worth with time as investment and profitability would have increased, plus higher taxes with higher profit another advantage.
Let argue about Land price first than we can see if Mill price was good or not?
Lands of PSM that got included as part of sale was 4547 acres and that land was actual land where Mill was situated. Some claim that value of this land was Rs 20 million an acre, but they are wrong. Why?
Land around PSM got worth because of PSM. Value of 20 million per acre is for those lands that can be used for any purpose, not one that has fixed purpose. For PSM land to get valued at 20 million, PSM had to dismantle Steel Mill and get permission from government to use it for any purpose and even than it would be worth much less than 20 million an acre. If there would have been no permission, land would be worth nothing. For instance, if there is farm land in centre of Islamabad without permission of getting that land used for any other purpose, than that land would be worth nothing, maybe not even 1 million an acre. Reason is simple, and that is, anyone who would buy that land has to do farming on that land and would see what he can get out of that land from farming per year. Same is true of PSM lands, as that land has fixed purpose and that is to have Steel Mill there.
As for land price, I am sure that many may be feeling surprised by me saying that its value cannot be calculated and compared with what free land outside Steel Mill in that area could be worth. Reason again is simple, that the value of those lands are worthless unless government gives permission to Steel Mill that they can dismantle the Mill and use that land for any purpose they want. Government permission is very important when worth of land is concerned, as same land that can only be used for any particular purpose (like Steel Mill only), for only farming, for residential purpose or commercial, can cost different prices.
So, anyone who would buy that land he has to put Steel Mill there (well, Steel Mill was already there) and now it is that Steel Mill that has to be business venture for any investor to buy that land and Mill. In most business ventures, if one invests 500 million dollars (total price of PSM), the venture has to give return of around 100 million dollars (or more) a year for it to be business. Pakistan Steel Mill was not even near to that return. I do not think that if I would have $500 million dollars than I would buy a Steel Mill that has thousands of employees (as to get rid of employees cost money too and regardless of profit, they get paid) and that Mill does not give a net profit of 75 to 100 million dollars a year. I might buy a Steel Mill with lower return if I would be expecting higher return soon, as investing of 500 million dollars would cost investors anything around 40 to 50 million dollars in interest alone every year.
If anyone thinks that $500 million for a Steel Mill with 1.1 million ton steel output and baggage of thousands of unproductive workers is not reasonable price than give me a single example where a Steel Mill with 1.1 million ton output was sold at much higher price than that. [As for land, I have already mentioned that land price is nominal unless there is permission of government for its use other than Steel Mill purpose].
Now, let see what other Steel Mills got?
Here is one: Luxembourg-based ArcelorMittal claims that Esmark breached its August 2007 agreement to purchase the Sparrows Point plant for $1.35 billion. The proposed sale fell through in December because of financing problems
http://www.businessweek.com/ap/financialnews/D90I7RV00.htm
Sparrows point plane: Employees 2500 and produces 3.5 million ton of Steel. Just look at efficiency of the Mill, that it employs 2500 people compare to more than 10 times by PSM, and produces 3.5 million ton Steel, that is more than 3 times what PSM produces. Still it seems that $1350 was a good price, that fell and seller (Mittal and Co) are upset.
Compare another sale (the highest price for a Steel Mill): World biggest Steel Mill in Ukrainian (Kryvorizhstal Steel Mill) was initially sold for $850 but later bought by Mittal group for $4.8 billion (around 10 times what PSM was getting). But then, Ukrainian Steel Mill has 56000 employees and produces around 8 million tons of Steel but that is not the end as Mill also includes Iron ore Mine that has possible reserves of 1000 million tons of iron ore. Mittal group bought this Mill and considered that he paid too much for it,
http://www.nytimes.com/2005/10/25/business…nyt&emc=rss
[Kryvorizhstal’s production capacity could reach 10 million tons a year, and the acquisition comes with an iron ore mine with possible reserves of one billion tons, Aditya Mittal, Mr. Mittal’s son and the company’s president and chief financial officer, said during the conference call. Kryvorizhstal also produced 17.1 tons of iron ore.
…
The $4.8 billion sale price was more than double the price originally set by the Ukrainian government, though with steel prices softening in some regions, some analysts in London wondered if Mr. Mittal overpaid]
Well, there are 100s of Steel Mills going for sale and even though I am not putting prices of all, I can tell this much that PSM price (100 percent) of $500 million was not that mean (especially, government could have got much more for their 25 percent share later on once Mill would have started working more efficiently).